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Fevertree keeps on raising the bar
High-end tonic water-to-ginger ale supplier Fevertree Drinks (FEVR:AIM) continues to look a long-term winner after treating investors to a sixth round of earnings upgrades since listing on AIM two years ago (7 Nov ‘14).
Forecasts were revised upwards again following the latest trading update (7 Nov). Management flagged a continued strong performance in the second half of 2016 and said calendar year results would be materially ahead of current market expectations.
A buyer with a new £11.40 price target, Investec Securities has upgraded its 2016 sales estimate by 11% to £93.9m and pushed through a 17% upgrade to its pre-tax profit forecast to £30.9m. The broker now expects 2016 earnings of 21.3p following the latest upgrade. The stock now trades on a prospective PE ratio of 52 times.
Fevertree says it grew particularly strongly in the UK, its biggest market, reflecting new distribution gains and growth in existing accounts in both the ‘On Trade’ (restaurants, hotels, bars) and ‘Off Trade’ (retailers) channels. We see scope for further near-term upgrades, since consumers will splash out on high quality mixers to complement vodka, gin and whisky over the festive period. A big overseas earner, Fevertree is also a notable beneficiary of sterling weakness.
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We were among the first to spot the potential of Fevertree at just 212.75p in February 2015 and flagged scope for continued growth again in an in-depth interview with co-founder and CEO Tim Warrillow on 19 November 2015. We are mindful of the risk that any slowing of the growth rate would be punished by the market, but do not expect this in the near-term.
An increasingly iconic brand, Fevertree is riding an international boom in gin and tonic. And while the overall mixer market is mature, the soft drinks star turn has first mover advantage in premium mixers. An asset-light outsourced production model also means Fevertree is extremely cash generative and offers a progressive dividend. (JC)
At £11.01 Fevertree’s growth rates continue to justify a premium valuation.